Timing the Factor Zoo

69 Pages Posted: 3 Apr 2023 Last revised: 12 Jul 2024

See all articles by Andreas Neuhierl

Andreas Neuhierl

Washington University in St. Louis - John M. Olin Business School

Otto Randl

Vienna University of Economics and Business

Christoph Reschenhofer

Vienna University of Economics and Business

Josef Zechner

Vienna University of Economics and Business

Date Written: July 12, 2024

Abstract

We provide a comprehensive analysis of the timing success for equity risk factors. Our analysis covers over 300 risk factors (factor zoo) and a high-dimensional set of predictors. The performance of almost all groups of factors can be improved through timing, with improvements being highest for profitability and value factors. Past factor returns and volatility stand out as the most successful individual predictors of factor returns. However, both are dominated by aggregating many predictors using partial least squares. The median improvement of a timed vs. untimed factor is about 2% p.a. A timed multifactor portfolio leads to an 8.6% increase in annualized return relative to its naively timed counterpart.

Keywords: time-varying risk premia, factor investing, partial least squares JEL codes: G10, G12, G14

JEL Classification: G10, G12, G14

Suggested Citation

Neuhierl, Andreas and Randl, Otto and Reschenhofer, Christoph and Zechner, Josef, Timing the Factor Zoo (July 12, 2024). Available at SSRN: https://ssrn.com/abstract=4376898 or http://dx.doi.org/10.2139/ssrn.4376898

Andreas Neuhierl

Washington University in St. Louis - John M. Olin Business School ( email )

St. Louis, MO
United States

Otto Randl

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Christoph Reschenhofer (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Josef Zechner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

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